The Cabinet Wednesday approved promulgation of an ordinance to amend the GST compensation law to pave the way for increasing cess on mid and large cars.

According to the proposed ordinance that seeks to amend the Goods and Services Tax (Compensation to States) Act, 2017, the maximum compensation cess can be raised to 25 per cent, from 15 per cent.

The decision to increase the cess on mid- and large-sized vehicles will be taken by the GST Council, said Finance Minister Arun Jaitley while communicating the Cabinet decision.

“The object of the government policy cannot be such that luxury items become cheaper,” the minister said, adding that the policy can only make items of mass consumption not expensive.

He further said the increased cess would apply on motor vehicles for transport with a carrying capacity of not more than 13 persons, including the driver.

The GST Council, at its meeting in August, considered the fact that after the GST rollout, the total tax on motor vehicles – GST plus the compensation cess – has come down in comparison to the pre-GST taxation.

The Council, headed by Jaitley and comprising state finance ministers, had recommended an increase in the cess.

Jaitley further said the issue of increase in effective rate of compensation cess on motor vehicles will be examined by the GST Council in due course.